Money puzzle
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When You Say: "Terror! I'm Afraid I'm Going to Make a Tragic Mistake!"
You are not alone. Scientists using brain scans have found that financial decisions spark activity in the limbic system, a part of our brains that deals with risk and reward. Researchers have discovered that people feel the sting of a loss twice as acutely as they feel the pleasure of a gain. So even though all available evidence suggests the stock market will be much higher 20 years from now than it is today, your fear that it will go down tomorrow—which it very well might—prevents you from investing for retirement.

The fear factor is only exacerbated by CNBC. "Many people in the media and the financial services industry present these decisions as winner take all," says Ric Edelman, a financial planner and author of The Lies About Money. "The message is that if you don't make the right decision, you'll lose everything." That paralyzes people.

"Investing is not a horse race," says Edelman. "It's a game of horseshoes, where being close can be good enough to win." For instance, by owning a plain vanilla, low-cost index fund such as the Vanguard 500, which basically tracks the return of the U.S. stock market, an investor will get merely average returns. Since 1926, that average annual return is 10.4 percent. If a 30-year-old were to invest $5,000 in her 401(k) every year, get a $2,500 match from her company, and earn 10.4 percent a year, she would have about a $2 million nest egg at age 65. While that's a simplistic example, it's still instructive: Invest diligently in a low-cost index fund, ignoring market downturns and the latest hot funds, and you'll go a long way toward securing a comfortable retirement.

Once clients have a plan in place, Edelman says, you can see their terror melt away. "They feel not merely more confident about their investments," he says. "They feel more confident about their entire lives. Their marriages get stronger; they are able to make better career decisions because they know that the future is secure."

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